A0655
Title: Calibrating with a smile the Mellin transform way
Authors: Marianito Rodrigo - University of Wollongong (Australia) [presenting]
Abstract: It is well known that the volatility in the Black-Scholes framework is not a constant but a function of both the strike price (``smile/skew'') and the time to maturity. A popular approach to recovering the volatility surface is using deterministic volatility function models via Dupire's equation. A new method for volatility surface calibration based on the Mellin transform is proposed. An explicit formula for the volatility surface is obtained in terms of the Mellin transform of the call option price with respect to the strike price, and a numerical algorithm is provided. Results of numerical simulations are presented, and the stability of the method is numerically verified.
